The ‘breach date’ rule: two recent cases on crystallisation and mitigation

It is well known that damages for negligence are usually assessed at the date of breach, but this is subject to two important principles. First, when is the loss actually suffered (or crystallised) and, second, whether the loss has been increased by the claimant’s failure to act reasonably through mitigation.

There have been two recent cases before the Court of Appeal which consider these principles.

In Bacciottini v Gotelee & Goldsmith [2016] EWCA Civ 170 the solicitors for the buyers of a property in 2007 were negligent for failing to take notice of a condition on an existing planning consent which restricted the residential use of the property. The claimants applied to have the condition removed and in late 2009 the local authority agreed. The costs of rectification were assessed at £250. The claimants sued their solicitors for the diminution in value, being £100,000.

The Court of Appeal upheld the first instance decision that the diminution in value claim had been eradicated by mitigation. The Court rejected arguments that the loss should be ‘fixed’ at the date of the transaction. There was a sufficient connection between the act of mitigation and the breach in order for it to be brought into account in assessing damages and to award the diminution in value would be to overcompensate the claimants.

In LSREF III Wight Limited v Gateley [2016] EWCA Civ 359 the solicitors were negligent for failing to notify their client, a subsidiary of Anglo Irish Bank (the Bank), of a particular clause in its borrower’s lease over which the Bank’s loan was secured. The relevant clause provided for the lease to be forfeited where the borrower suffered any of a number of specified insolvency events. This therefore had an impact on the Bank’s security. The borrower’s landlord agreed to remove the offending clause for £150,000 which the solicitors offered to pay. The claimant (who took an assignment of the Bank’s rights) declined this offer and claimed diminution in value, which was found to be £240,000.

At first instance the claimant was awarded £240,000 on the basis that the Judge regarded obtaining a variation of the lease to be a complicated and risky exercise such that it was not possible to say the claimant had acted unreasonably in failing to pursue it. After trial, the claimant went ahead with the variation of the lease, paying the landlord £150,000.

The Court of Appeal overturned the first instance decision, finding that the Judge had been wrong to assess the alleged loss at the transaction date (i.e. the date of breach), rather than the trial date. Further the appellate court found that the claimant had unreasonably failed to mitigate its loss by failing to accept the landlord’s offer.

In both of these cases the overarching issue was whether the assessment of damages should be ‘fixed’ at the date of breach, with the court effectively turning a blind eye to subsequent events.

The disinclination of the court to blind itself is explained by Lord Hoffmann in SAAMCO v York Montague Ltd [1997] AC 191 when it is made clear there is no hard and fast rule about damages at ‘date of breach’, even though this necessarily leads to uncertainty. His Lordship expressly accepted that this could, for example, mean that damages could be different depending on the date of trial. This was found to be preferable to the injustice of ignoring all subsequent events.

Although both of the results seem to be common sense, it is clear, in particular from the first instance decision in LSREF, that the application of the principles can still prove problematic in practice. For those of us advising on damages it is important to bear in mind that the ‘breach date’ rule is not immutable and to consider carefully both the appropriate date at which loss has been suffered, as well as mitigation. It is clear there is no set ‘long stop’ for valuing, remedying or rectifying the breach, save that the Court may simply be left to conduct this assessment at the date of trial.